Rank Group — Update 14 October 2016

Rank Group (LSE: RNK)

Last close As at 20/06/2024

73.00

0.80 (1.11%)

Market capitalisation

GBP342m

More on this equity

Research: Consumer

Rank Group — Update 14 October 2016

Rank Group

Analyst avatar placeholder

Written by

Consumer

Rank Group

Likely to be H2 weighted

AGM trading statement

Travel & leisure

14 October 2016

Price

203p

Market cap

£793m

€1.11/$1.22/£

Net debt (£m) at 30 June 2016

41.2

Shares in issue

390.7m

Free float

29%

Code

RNK

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

(11.6)

(22.6)

Rel (local)

(7.4)

(15.9)

(29.2)

52-week high/low

295.50p

199.70p

Business description

Rank is a gaming-based leisure and entertainment company. Its Grosvenor and Mecca brands are market leaders in UK multi-channel gaming and it also has operations in Spain and Belgium.

Next events

Interim results

26 January 2017

IMS

May 2017

Analysts

Jane Anscombe

+44 (0)20 3077 5740

Katherine Thompson

+44 (0)20 3077 5730

Rank Group is a research client of Edison Investment Research Limited

Rank has reported flat revenue for the first 15 weeks, against a strong 2015 comparative. Mecca digital has just been relaunched, supported by a new TV campaign, and better cross-sell remains a key opportunity for Rank. We expect profits to be H2 weighted, and with a slightly uncertain consumer outlook we have trimmed full year estimates, but Rank remains strongly cash generative. This underpins its progressive dividend payout and leaves it flexible to take advantage of acquisition opportunities.

Year
end

Revenue* (£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

738.3

126.3

74.1

14.6

5.6

13.9

2.8

06/16

753.0

128.2

77.4

15.4

6.5

13.2

3.2

06/17e

777.0

130.0

78.5

15.6

7.1

13.0

3.5

06/18e

800.0

137.5

86.0

17.1

8.5

11.9

4.2

Note: *Revenue is before customer incentives. **Normalised, excluding amortisation of acquired intangibles, one-off and exceptional items.

A flat start to the year

L-f-l revenue for the 15 weeks to 9 October grew by 1%, with total revenues flat. Grosvenor venues in particular faced a tough comparative, with l-f-l revenue down 1% versus a 2015 period that grew by 10% (helped by a strong win margin). Mecca venues’ flat l-f-l was a solid performance. Grosvenor digital’s 30% growth (off a small base) was partly offset by Mecca digital (-4% as expected, due to the platform migration disruption), leaving overall digital revenues up 7%.

Mecca digital now relaunched

Mecca bingo has now revamped its online and mobile offering, with a new front end and more games. The next six months are an important proving period, with competitors such as Gala Bingo, Jackpot Joy and Stride Gaming all reporting good growth, suggesting that the market remains vibrant, at least for the larger players.

Revisions to estimates

With added cost pressures in FY17 (Living Wage, rent reviews), we expect flattish H117 revenues to translate into slightly lower profits. By contrast, we expect H217 to show c 10% growth as Grosvenor venues face easier comparatives and digital gathers momentum. However, we now allow for a weaker outlook for leisure spending in our forecasts and have reduced our FY17e normalised PBT by £3m (3.7%) to £78.5m.

Valuation: 2016e EV/EBITDA only 6.4x

Rank’s 2016e (calendar) EV/EBITDA is now only 6.4x compared with a peer group average of 10.9x. Exposure to UK leisure spending should be balanced against its fully regulated status and our SOTP is 250-295p. News of positive progress at Mecca digital with the interims on 26 January would be a positive catalyst.

Trading statement

Rank’s AGM statement was relatively brief. Grosvenor Casinos’ venue l-f-l revenues were reported to have declined by 1% due to a lower average margin and lower customer visits. We believe that both London and the provinces were slightly lower, mainly due to a lower number of visits by leisure customers. With monthly fluctuations it seems too early to tell whether this is a trend, particularly since it compares with a very strong 15-week period in 2015 when Grosvenor l-f-l revenues increased by 10%.

Grosvenor digital revenues increased by 30%, as we expected. The new Bede platform appears to be performing well and the product offering has been improved with the addition of sports betting (supplied by Kambi and soft-launched in time for the UEFA Euro 2016 in June).

Mecca venues’ l-f-l revenues are reported to be flat, a solid performance for the mature but highly cash-generative business. We believe that spend per head has continued to increase slightly, offsetting lower visits.

We have discussed the disruption to Mecca digital’s platform migration in previous notes (see our Update report dated 23 August). It is about six months behind target in terms of functionality and, in a competitive marketplace, revenue declined by 4% in the 15 weeks to 9 October. However, Rank has now relaunched its website and mobile offering and begun marketing ahead of the important winter period (including a new TV ad with the strapline ‘We know the feeling’). The interim results on 26 January should provide an important guide to its ability to gain traction and capitalise on its strong brand and cross-sell opportunity.

Updated estimates

Exhibit 1 shows our new divisional estimates and Exhibit 2 our changes to estimates:

Exhibit 1: Divisional analysis

Year to June £m

FY15

FY16

FY17e

FY18e

Analysis of revenue:

Grosvenor venues

401.1

408.1

415.4

421.4

Grosvenor digital

22.3

30.5

39.7

49.6

Grosvenor

423.4

438.6

455.0

471.0

Mecca venues

224.4

221.5

219.0

216.3

Mecca digital

65.2

66.2

72.8

81.2

Mecca

289.6

287.7

292.0

297.5

Enracha revenue

25.3

26.7

30.0

31.5

Group revenue*

738.3

753.0

777.0

800.0

EBITDA

126.3

128.2

130.0

137.5

EBITDA margin %

17.1%

17.0%

16.7%

17.2%

Depreciation/amortisation

(42.3)

(45.8)

(47.0)

(47.5)

Grosvenor venues op. profit

63.4

60.9

63.5

65.5

Grosvenor digital op. profit

3.1

5.3

7.5

10.0

Grosvenor operating profit

66.5

66.2

71.0

75.5

Mecca venues op. profit

28.9

32.9

29.0

29.0

Mecca digital op. profit

14.1

8.6

7.0

11.0

Mecca operating profit

43.0

41.5

36.0

40.0

Enracha operating profit

2.6

3.6

4.1

4.5

Central costs

(28.1)

(28.9)

(28.1)

(30.0)

Group operating profit (norm)

84.0

82.4

83.0

90.0

Source: Rank Group accounts, Edison Investment Research

We are not publishing detailed H117 estimates, but we assume that revenues will be only slightly ahead of last year’s £374m, while margins will be affected by higher costs in both Grosvenor and Mecca (Living Wage, rent reviews). Mecca digital’s profits will also have been affected by the delay in the full site relaunch. Overall, we expect H117 group operating profit of c £37m (H116: £40m) and H116 normalised PBT of £34.5m (£37.4m), with some benefit from lower interest charges.

By contrast, we expect a much stronger profit performance H217, with operating profit of c £46m (H216: £40m). Our forecast growth all arises in Grosvenor, with digital margins widening as it scales up and venues having a much easier comparative in Q4. We expect Mecca profits to remain under pressure with increased marketing to rebuild the digital business, which should then pay off in FY18. Overall, we now allow for a weaker outlook for leisure spending in our forecasts and have reduced our FY17e normalised PBT by £3.0m (3.7%) to £78.5m, with a similar reduction for FY18.

Exhibit 2: Changes to forecasts

EBITDA (£m)

PBT (£m)

EPS (p)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

FY17e

133.0

130.0

-2.3

81.5

78.5

-3.7

16.2

15.6

-3.7

FY18e

141.5

137.5

-2.8

90.0

86.0

-4.4

17.9

17.1

-4.5

Source: Edison Investment Research

Exhibit 3: Financial summary

£'m

2014

2015

2016

2017e

2018e

June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

707.7

738.3

753.0

777.0

800.0

Cost of Sales

(409.2)

(414.2)

(427.1)

(444.3)

(457.2)

Gross Profit

298.5

324.1

325.9

332.6

342.8

EBITDA

 

 

116.0

126.3

128.2

130.0

137.5

Operating Profit (before amort. and except.)

72.4

84.0

82.4

83.0

90.0

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

(46.5)

2.1

9.3

0.0

0.0

Operating Profit

25.9

86.1

91.7

83.0

90.0

Net Interest

(9.9)

(9.9)

(5.0)

(4.5)

(4.0)

Other finance adjustments*

(1.6)

(1.7)

(1.1)

0.0

0.0

Profit Before Tax (norm)

 

 

62.5

74.1

77.4

78.5

86.0

Profit Before Tax (FRS 3)

 

 

14.4

74.5

85.6

78.5

86.0

Tax on norm PBT

(13.9)

(17.0)

(17.4)

(17.7)

(19.4)

Profit After Tax (norm)

48.6

57.1

60.0

60.8

66.7

Profit After Tax (FRS 3)

0.5

57.5

68.2

60.8

66.7

Average Number of Shares Outstanding (m)

390.7

390.7

390.7

390.7

390.7

EPS - normalised (p)

 

 

12.4

14.6

15.4

15.6

17.1

EPS - (IFRS) (p)

 

 

5.2

19.1

18.2

15.6

17.1

Dividend per share (p)

4.50

5.60

6.50

7.10

8.50

Gross Margin (%)

42.2

43.9

43.3

42.8

42.8

EBITDA Margin (%)

16.4

17.1

17.0

16.7

17.2

Operating Margin (before GW and except.) (%)

10.2

11.4

10.9

10.7

11.3

BALANCE SHEET

Fixed Assets

 

 

613.3

607.2

614.1

638.0

643.0

Intangible Assets

390.2

395.7

404.3

410.0

415.0

Tangible Assets

217.5

204.0

202.0

220.0

220.0

Deferred tax/other

5.6

7.5

7.8

8.0

8.0

Current Assets

 

 

87.9

123.4

100.5

83.5

96.0

Stocks

3.1

2.8

2.9

3.5

4.0

Debtors

37.7

31.0

36.6

40.0

44.0

Cash

47.1

89.6

61.0

40.0

48.0

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(168.4)

(309.4)

(173.9)

(187.5)

(190.0)

Creditors (incl provisions)

(164.0)

(184.5)

(159.5)

(167.5)

(170.0)

Short term borrowings

(4.4)

(124.9)

(14.4)

(20.0)

(20.0)

Long Term Liabilities

 

 

(290.5)

(126.8)

(188.1)

(141.0)

(94.0)

Long term borrowings

(179.7)

(17.6)

(87.8)

(56.0)

(32.0)

Other long term liabilities

(110.8)

(109.2)

(100.3)

(85.0)

(62.0)

Net Assets

 

 

242.3

294.4

352.6

393.0

455.0

CASH FLOW

Operating Cash Flow

 

 

55.0

146.6

110.2

121.2

134.5

Net Interest

(8.1)

(7.5)

(5.0)

(4.5)

(4.0)

Tax

(19.1)

(2.2)

(31.1)

(15.7)

(17.2)

Capex

(44.3)

(31.9)

(52.7)

(65.0)

(47.0)

Acquisitions/disposals

0.3

(1.0)

16.2

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

Dividends

(16.4)

(18.6)

(22.7)

(26.6)

(30.9)

Net Cash Flow

(32.6)

85.4

14.9

9.4

35.4

Opening net debt/(cash)

 

 

104.1

137.0

52.9

41.2

36.0

HP finance leases initiated

(2.3)

(3.1)

(2.8)

(3.0)

(3.0)

Other

2.0

1.8

(0.4)

(1.3)

(0.4)

Closing net debt/(cash)

 

 

137.0

52.9

41.2

36.0

4.0

Source: Rank Group, Edison Investment Research. Note: *Unwinding of discount on disposal provisions, other financial gains and losses.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rank Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rank Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

More on Rank Group

View All

Latest from the Consumer sector

View All Consumer content

Research: Healthcare

Selvita — Update 14 October 2016

Selvita

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free